The Dow Jones Industrial Average dropped 253.88 points, or 0.82 percent, to 30,775.43. The S&P 500 decreased 33.45 points, or 0.88 percent, to 3,785.38. The Nasdaq Composite Index lost 149.15 points, or 1.33 percent, to 11,028.74.
Eight of the 11 primary S&P 500 sectors ended in red, with energy and communication services down 2.04 percent and 1.55 percent, respectively, leading the laggards. Utilities rose 1.1 percent, the best-performing group.
Inflation, higher interest rates and recession risk remain major drivers on Wall Street.
A key U.S. inflation report released on Thursday failed to assure investors.
U.S. personal consumption expenditures (PCE) inflation rose 0.6 percent in May for a 6.3 percent year-on-year gain, said the Commerce Department.
The core PCE price index, which excludes food and energy, rose 0.3 percent for a 4.7 percent year-on-year increase, showed the report.
"PCE inflation rose slightly less than expected in May, but it's still too high," Will Compernolle, senior economist at FHN Financial, said Thursday in a note.
"A 0.3 percent core PCE increase is much less alarming than the 0.5 percent May CPI increase, but the Fed will have to see improvement in both measures," Compernolle added.
The U.S. Federal Reserve is raising interest rates aggressively as price pressures hit a multi-decade high, triggering concerns over a possible recession.
On another data front, the Labor Department said U.S. initial jobless claims, a rough way to measure layoffs, registered 231,000 in the week ending June 25, following an upwardly revised reading of 233,000 in the prior week. Economists polled by The Wall Street Journal had estimated new claims would total 230,000.
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